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The Cloud Business Case: Are Expected Cost Savings Realistic ?

According to Claranet Product Director Martin Saunders, cloud computing is not a cheaper alternative to on-premise server. However, cloud computing services do make up for that disadvantage. According to Saunders, cloud computing isn’t about purchasing hardware and infrastructure only. Usually, companies and individuals only compare the cost of on-premise server to the cost of cloud server. In the minds of these entities, an on-premise server will depreciate itself in 3 years while the cloud computing server will be treated as a continuous expenditure. The costs of electricity, labor, and staff training as well as personnel requirement are often left out of the picture.

According to Microsoft Chief Technology Officer for Cloud Services Ron Fraser, oftentimes the cloud is marketed as a cost-saving device and that the Chief Information Officer is tasked to map out a cloud computing strategy. However, cloud services providers are now talking to Chief Financial Officers and Chief Marketing Officers. From the internal perspective, cloud computing is about portfolio application management, risk assessments, and probable cost savings. On the other hand, the external perspective deals about the cloud computing economics. According to Fraser, there is a basic and important move to equalize entry to the economies of scale which means that a small-scale business can have the same access to cloud computing as the global and diversified companies at the same price.

Cloud computing costs are now the subject of scrutiny because the European Commission is implementing a new strategy to increase and hasten cloud computing use within member countries. According to the European Union, entities which move their operations to the clouds achieve at least 10% cost savings. The new strategy is expected to rake in as much as 160 billion in Gross Domestic Product as well as create 2.5 million fresh jobs by 2020.

On the hand, Anthony Miller of TechMarketView is skeptical about the expected growth in jobs as well as revenues because cloud computing technologies are deflationary. According to him, they anticipate a reduction in IT services and software spending in the UK until 2015 and that there won’t be much improvement up to 2019.

In the United States of America, the General Services Administration, after internal audit, can’t justify the $15 million savings it claimed the Federal Government can save when it pushed for the adoption of Google’s cloud computing services for collaboration and email. The results of the audit have been released by the agency’s inspector general. According to the audit report, the expected cost savings can’t be verified. There were also unclear or lacking performance measures and that the agency didn’t inventory its applications which had been shifted to the clouds. Therefore, the inspector general had no way of verifying whether the intended savings were really met.

According to John Foley of InformationWeek, he did bring up the issue as early as April 2010 before the General Services Administration transferred their email applications to the clouds. According to him, the evidence would be “fuzzy”. However, according to General Services, it had $2.9 million savings since it implemented its migration to Google’s clouds. The savings comprise about $1 million on support, services, and hardware and the other $1.8 million is saved on software licensing. According to Foley, the importance of project management and business planning must be stressed when organizations move to their operations to the clouds and that these entities should learn from the General Services Administration’s experience.

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